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Goldman names Chipotle its favorite restaurant stock

Key Points
  • Goldman Sachs initiates coverage of Chipotle with a buy rating and a $1,000 price target and adds it to its conviction list.
  • Chipotle's stock is on a tear, climbing more than 80% this year, after lagging the sector since 2015 because of its food safety crisis.
  • Goldman also starts coverage of McDonald's, Starbucks, Shake Shack and Wingstop with buy ratings.
An employee prepares a burrito bowl at a Chipotle Mexican Grill Inc. restaurant in Louisville, Kentucky, Feb. 2, 2019.
Luke Sharrett | Bloomberg | Getty Images

Goldman Sachs is bullish on Chipotle, predicting digital sales will drive the next leg of the stock's rally.

The firm initiated coverage of Chipotle with a buy rating and a $1,000 price target, representing 28% upside for the stock, and added Chipotle to its conviction buy list.

"By flexing their digital muscle and migrating customers to this channel, the company is able to grow capacity in the stores well beyond prior "peak" in 2014 as well as grow frequency and spend potential," Goldman Sachs' Katherine Fogertey said in a note to clients Monday.

Chipotle's stock is on a tear, climbing more than 80% this year, after lagging the sector since 2015 during its food safety crisis. The stock hit an all-time high in extended trading last week after the chain reported better-than-expected quarterly earnings, fueled by digital sales numbers that nearly doubled.

Shares of Chipotle rose 3.26% on Monday.

For the quarter, Chipotle's digital sales grew 99.1% and made up 18.2% of sales for the quarter. Goldman expects digital sales to be "a powerful tool to unlock restaurant margin expansion."

Fogertey said a strong macro backdrop should drive Chipotle's same-store sales growth to 10.1% this year and 8% in 2020.

Goldman also initiated coverage of McDonald's, Starbucks, Shake Shack and Wingstop with buy ratings.

The firm said strong consumer spending, digital engagement and delivery driving higher prices and traffic are accelerating fundamentals for restaurants. The fast casual restaurant stocks have outperformed the S&P 500 14% year to date.

— With reporting from CNBC's Michael Bloom